What Can We Learn by Disaggregating the Unemployment-Vacancy Relationship?

Public Policy Brief No. 12-3
by Rand Ghayad and William Dickens

The Beveridge curve—the empirical relationship between unemployment and job vacancies—is thought to be an indicator of the efficiency of the functioning of the labor market. Normally, when job vacancies rise, unemployment falls, following a curved path that typically remains stable over long periods of time. When vacancies rise and unemployment does not fall (or falls too slowly) this may be an indication of problems of structural mismatch in the labor market leading to an increase in the lowest unemployment rate that can be maintained without increasing inflation (the NAIRU or nonaccelerating inflation rate of unemployment). Such a change in the vacancy-unemployment relationship occurred once in the 1970s and persisted through the late 1980s, and we have recently observed a similar change.

This policy brief explores the nature of the recent change in the vacancy-unemployment relationship by disaggregating the data by industry, age, education, and duration of unemployment, and by examining blue- and white-collar groups separately.

The plots presented here reveal a similar pattern of increasing vacancies with little or no change in unemployment in the recovery from the most recent recession across all categories except one: short-term unemployment. The relationship between short-term unemployment and vacancies is unchanged. Thus, all of the increase in vacancies relative to unemployment has taken place among the long-term unemployed.

This situation contrasts with the change in the Beveridge curve relationship in the 1970s, when an increase in the level of vacancies without a decline in unemployment affected both the long- and short-term unemployed. Further, in the 1970s the outward shift of the Beveridge curve was largely concentrated among blue-collar workers, whereas the recent shift seems to have affected both blue- and white-collar workers. Finally, the shift in the 1970s took place over several years, while the current shift seems to have taken less than six months. Thus, there is reason to believe that the current shift may not have the persistence or the effects on the NAIRU that the shift of the 1970s had.

Considering all the evidence together, we conclude that the current outward shift of the Beveridge curve is likely being driven by something other than a mismatch between workers’ skills and the demands of available jobs.

JEL Codes: D31, D63, I32

Full-text brief pdf